*Of Course* Doing Health Care Slowed the Recovery

June 12, 2012

Last week Mitt Romney inadvertently kicked up a debate in the blogosphere over whether health care reform had hurt the recovery. Since he did it by citing my recent book, I felt compelled to explain how he hacked up my argument: My point was that the time and resources spent on health care reform made it harder to get more stimulus, not, as Romney suggested, that the health care bill directly hurt the economy. But many liberals have rejected even my more modest claim, and for reasons I don’t find persuasive.

The basic argument, as Jon Chait argued, is that Obama simply didn’t have the votes in the Senate to pass more stimulus. If passing something is impossible, then you don’t lower your chances by not trying. Your chances can’t get lower than zero.

Not surprisingly, I got a lot of this pushback from administration officials while writing my book. My response to them was always: “depends what kind of stimulus you’re talking about.” If you go to Congress and say, “we want another $400 billion in stimulus,” then, no, you won’t get anywhere. But if you go to Congress and say you want a $400 billion payroll tax cut to spur hiring and let people keep more of their wages, then I’d say the chances are pretty high. As it happens, this is the tack Obama ultimately took in late 2010, then again in late 2011, and it worked pretty well each time. What those episodes demonstrated is that it’s really hard for even Republicans to oppose stimulus when it comes in the form of an easy-to-grasp tax cut.

But, of course, even if you could have found 60 senators who were open to more stimulus between February 2009 (when the original stimulus passed) and March 2010 (when health care passed), that doesn’t mean they would have supported it in practice. As Ezra Klein and Kevin Drum subsequently argued, more stimulus didn’t seem necessary during that time because the economy was on the mend. It was only after health care reform passed that the need for more stimulus became apparent. Which makes it hard to argue that health care derailed it.

As Ezra wrote:

The economy was in freefall through much of 2009. But as the year wore on, the job losses fell from 800,000 a month in January to 170,000 in December. And, in the beginning of 2010, the economy began growing again. We added 189,000 jobs in March — the very month the health care bill passed. We added 239,000 jobs in April. It appeared that the stimulus was working. Perhaps it had been enough. Then, later in 2010, we began shedding jobs again. In my reporting, that’s when a number of Obama’s economist staffers began seriously thinking we needed a second stimulus. But by that time, health care had passed.

I think this is off the mark for several reasons. First, as Sean Trende notes a post today on RealClearPolitics, even though the job losses were narrowing and the economy was starting to grow again in late 2009, the unemployment rate continued to rise. Most incumbents understand their political interest to be tied as much (if not more) to the unemployment rate as it is to job gains or GDP growth.

Second, it became clear within weeks of passing the stimulus that the administration’s projections had been much too optimistic: The economy was in much worse shape than Obama’s economists realized when they first proposed $800 billion worth of spending and tax cuts (and even that had been vastly insufficient relative to what the economists deemed truly necessary). No surprise, then, that top administration officials—like Christy Romer, Alan Krueger, and Jared Bernstein—were arguing internally for more stimulus as early as the spring and summer of 2009. By the fall, even Larry Summers had become quite outspoken about this, as I describe in my book.

And all of this hand-wringing made an impression on the president. In June, several of the aforementioned economists attended an Oval Office briefing with Obama making the case that the recovery was shaping up to be distressingly “jobless.” Obama was clearly disturbed by what they told him, judging from his responses.

Third, Democratic Senators were also increasingly concerned about the economy in the summer of 2009. In my book, I describe a 45-minute Oval Office meeting between Obama and a Democratic Senator that August, in which the senator pleaded with Obama to ditch health care reform and focus on the economy. (Obama responded that he had a once-in-a-lifetime shot at bringing transformational change and he intended to take it.) The chief of staff to another senator told me he was uncomfortable with the White House’s singular focus on health care in the summer of 2009 given the country’s anxieties about the economy. My reporting suggests these views were relatively common in the Senate.

Fourth, as Trende notes, the White House proposed, and Congress actually passed, more stimulus while health reform was pending—see here and here. It just wasn’t very much. At the very least, this shows a certain level of anxiety on the part of Obama and his Democratic allies. (And that you could've gotten somewhat more stimulus if you'd tried.)

Fifth, I find the argument about timing pretty artificial. The suggestion from Ezra and Kevin is that the focus on health care reform between February 2009 and March 2010 wasn’t costly because the economic data didn’t really go south until the spring of 2010. But this misunderstands the way these legislative fights work. Given the political obstacles described above, the only way to get more stimulus in the spring of 2010 is if Obama had been laying the political groundwork for several months beforehand—that is, defending the first stimulus and making the case for more. And that clearly wasn’t possible during the all-consuming health care fight. Indeed, White House officials have acknowledged to me that health care derailed their plans to focus on the economy in late 2009 and early 2010.

Finally (and relatedly), even if you think it would have been pointless to spend most of 2009 and early 2010 pushing for more stimulus, given that the need wasn’t glaring until the spring of 2010, there were alternatives to health care that would have left the White House in a much stronger political position, making it easier to pass more stimulus when the opportunity came. Wall Street reform is the obvious example—an initiative that was far more looped into people’s frustrations over the financial crisis.

Ezra rejects this, saying that, “if you talk to people inside the White House, they say that the Treasury Department was understaffed and imposing massive regulatory uncertainty at the exact moment banks were weakest would have made it harder for the credit markets to recover.”

But while this was definitely true for the first few months of 2009, Treasury had actually produced a pretty detailed plan for financial reform by June. The reason it took so damn long to make it through Congress is, you guessed it, health care reform. During the summer of 2009, Tim Geithner frequently pleaded at White House morning meetings (quite emphatically, I’m told) for help getting financial reform going on Capitol Hill. The response from Rahm Emanuel or one of his aides was always some version of: our hands are completely full with health care. The same dynamic played out in Congress. Most notably, Chris Dodd, who would later guide financial reform through the Senate as Banking Committee chairman, was completely preoccupied with health care during the summer of 2009. He was acting as chairman of the health and labor committee while Ted Kennedy battled brain cancer.

All of which is to say, of course health care reform made it harder for Obama to get more stimulus and speed up the recovery. We can debate the size of this effect—and I’m willing to believe it was second-order rather than first-order—but the existence of a tradeoff seems undeniable to me. Now, that wasn’t necessarily a reason not to do health care. I’ll be the first to acknowledge it was a monumentally important achievement which may have been worth the cost. As Larry Summers put it during one of our interviews, 50 years from now people will remember that Obama gave us health care, not how long the recession lasted. The problem is that, in 2012, voters are still a lot more concerned about the recovery.